Investing for the Future
June 26, 2023
Financial education is limited in our education system. Less than half of high school students are required to take a financial education class. This puts the responsibility on family to educate children on the how to invest and be financially successful.
Kids are the future but often times we exclude our kids from financial discussions. I encourage you to start including them in discussions.
The conversations will change over time. Early on, focus on budgeting and how much things cost. Discuss how you, as a parent, have money to buy things for both needs and wants.
Once you have moved passed the basics of budgeting and saving, introduce ways to grow savings that reward delayed gratification. Discuss what their goals are and how they can achieve those goals by waiting to consume.
As you introduce investing, it is important to teach that investing is a long-term focus, not a get rich quick scheme. Consistent long-term investing is very different than trying to pick the next hot stock.
When it comes to picking investments there are several low cost mutual fund options available that offer good diversification.
If you feel comfortable doing your own research, I encourage buying individual name holdings. With individual names, you and your child can pick names that they know. This will not only make it more interesting but also more real for them. The other benefit of holding individual names is they allow for more control over future tax situations that may arise.
There are a couple different options to consider when setting up an investment account for your child. If your child has earned income, setting up a Roth IRA is the best vehicle for them to start investing. The long time horizon allows the investments to grow for an extended period before they are withdrawn tax-free.
However, if your child does not have earned income you can set up a custodial account. A parent is listed on the account for the benefit of the child. When the child turns 18 the account can transfer to a traditional brokerage account controlled by the now adult child.
Start the conversation early. You will be surprised how quickly your child starts to grasp the topic. We tend to focus on educating our children into high paying careers. We can overlook the other input of the financial equation, savings. By starting the conversation early we will set our children up for financial success in the future.
At Iowa State Bank, our Trust & Wealth Management experts are here to advise and guide you. Whatever you empower us to do on your behalf, you remain in control. Reach out to a member of our team for more information and to get started on your investment journey!
Written by Lora Brons, CFA, VP & Trust Investment Officer.